The impact of the Wylfa power station on low-income private tenants July 2017 Contents Executive summary ..................................................................................................................................... 3 1. Introduction ..................................................................................................................................... 5 2. Methodology .................................................................................................................................. 6 Scenario 1 ..................................................................................................................................................... 6 Scenario 2 ..................................................................................................................................................... 6 Scenario 3 ..................................................................................................................................................... 7 3. The situation now ........................................................................................................................... 8 Households in poverty ................................................................................................................................ 8 Financial resilience ...................................................................................................................................... 9 Local Housing Allowance (LHA) ............................................................................................................. 10 4. The outlook for 2020 .................................................................................................................... 11 Scenario 1 - Rents increase in line with historical averages .............................................................. 11 Change in disposable income ............................................................................................................... 11 Households in poverty .............................................................................................................................. 11 Financial resilience .................................................................................................................................... 12 LHA freeze ................................................................................................................................................... 12 Scenario 2 - Rents increase by 25% in 2020 .......................................................................................... 13 Change in disposable income ............................................................................................................... 13 Households in poverty .............................................................................................................................. 13 Financial resilience .................................................................................................................................... 14 LHA freeze ................................................................................................................................................... 15 Scenario 3 - Rents increase by 40% ....................................................................................................... 16 Change in disposable income ............................................................................................................... 16 Households in poverty .............................................................................................................................. 16 Financial resilience .................................................................................................................................... 17 LHA freeze ................................................................................................................................................... 17 Scenario 3: details of the effect ............................................................................................................. 19 5. Conclusion and recommendations ......................................................................................... 20 Annex 1: key impact area ....................................................................................................................... 23 Annex 2: rent and LHA ............................................................................................................................. 27 About Policy in Practice .......................................................................................................................... 28 Contact us .................................................................................................................................................. 28 2 July 2017 Executive summary This report details the findings of analysis on the impact of the Wylfa power station on low- income private tenants in North West Wales. The analysis is based on household level data that captures the income, employment and housing circumstances of 2,766 households living near the site of the Wylfa power station, in what the Welsh government has identified as the key impact area1. There is concern that demand for housing will increase during construction of the power station, which will impact vulnerable residents in the area. The cap on LHA rates, the benefits freeze and increasing inflation, in addition to increasing rents, mean that many private renters in the key impact area will find themselves in a situation of rising costs, without the resources to cover them. Policy in Practice has conducted an independent assessment of the likely knock-on consequences that the development of the power station will have on low-income residents living in the private sector. This report details the situation in the key impact area now, and presents 3 scenarios in which private sector rents increase when construction of the power station begins. Scenario 1 (business as usual): rents are modelled on increases seen in the past 3 years, -0.3% in Anglesey, 0.9% in Conwy and 2.7% in Gwynedd2 Scenario 2: rent increases of 5% in years 2018 and 2019 and 25% in 2020 Scenario 3: rent increases of 5% in years 2018 and 2019 and 40% in 2020 The scenarios are based on case studies of other infrastructure investments3. The analysis takes into account other welfare reforms alongside increases in the National Living Wage, and a higher personal tax allowance. Findings Poverty after housing costs increases significantly as rents stray from capped Local Housing Allowance rates. The poverty rate for the key impact area in 2017 is 8.3%. The overall poverty rate is expected to increase to 14.0% in 2020 due to frozen benefit rates, changes to benefit regulations, the roll out of Universal Credit and the effects of inflation. With the construction of the power station, we estimate that poverty in the area increases only slightly to 14.3% in Scenario 2 and 14.5% in Scenario 3. However, this hides a significant impact on people living in the private rented sector. It is difficult to model an increase in social sector rents because of the future application of the LHA cap; however, ‘affordable rents’, set at up to 80% of market rents could also be impacted, potentially affecting 3,624 households. Private renters are the most heavily impacted across all scenarios. The poverty rate amongst low-income private renters is as high as 62% today; this could increase by a maximum of 24 percentage points, to 83% under Scenario 2 and 86% under Scenario 3 in 2020. In Scenario 3 there are 2,386 low-income private renting households in poverty, 528 of which are in work, compared to 440 in Scenario 1. Similarly, the number of lone parent households 1 See Annex 1 for a map of the key impact area and a list of the area names 2 This is equal to the average year on year rent increase for 2013-2014, 2014-2015 and 2015-2016 from Stats Wales, available here: https://statswales.gov.wales/Catalogue/Housing/Private-Sector-Rents 3 Investment in Pembrokeshire docks led to an increase in private rents of 25%, while investment in Aberdeen has led to increases in rents estimated at 40%. These scenarios were agreed with the client to help local authorities plan for a worst case scenario. 3 July 2017 in poverty increases by 91 between Scenarios 1 and 3. There are 794 low-income private renting households with children in poverty under Scenario 1, under Scenario 3 this figure increases to 921.7 The level of financial resilience among low-income private tenants in the area, calculated by taking living costs into account alongside income, shows an even more alarming increase at risk. The proportion of low-income private tenants facing a monthly shortfall between their income and their living costs could rise from less than a half currently to close to two-thirds under Scenario 3. Table 1.1: the effects of changing rents on poverty and financial resiliance on low-income private renters 2017 Scenario 1 Scenario 2 Scenario 3 1,714 2,088 2,304 2,386 In poverty (62.0%) (75.5%) (83.3%) (86.3%) At financial 1,251 1,274 1,623 1,771 risk (45.2%) (46.1%) (58.7%) (64.0%) Without efforts to mitigate the impact on low-income households, poverty will likely become more widespread in the area. An increasing number of households will struggle, with a growing number of families at risk of eviction and homelessness. This analysis estimates the total costs of homelessness